Purchasing a house is a huge milestone for anyone, especially for co-borrowers buying a home together for the first time. It used to be challenging to qualify for a mortgage if one co-borrower had a less-than-stellar credit score.
The dream of homeownership is now more attainable for would-be homeowners from dual-income households thanks to a significant change in Fannie Mae’s credit score calculation. This new rule change makes home buying and refinancing more attainable, allowing co-borrowers with varying credit profiles to achieve their homeownership goals.
In this blog post, we’ll delve into the details of this groundbreaking development and explore how it benefits prospective homebuyers.
The Old Credit Score Rule
In the past, Fannie Mae mandated that lenders use the lowest credit score of any co-borrower to meet the minimum credit score requirement, typically set at 620.
This meant that even if one co-borrower had an impressive credit score, they would be ineligible to buy or refinance a home together if the other’s score fell below the threshold.
The New Credit Score Rule
Fannie Mae’s recent rule change introduces a game-changing approach. Instead of focusing on the lowest credit score, lenders can now average the credit scores of co-borrowers to determine eligibility.
Here’s how it works: Let’s say two co-borrowers have credit scores of 720 and 610. If you average those credit scores together, the new score used to qualify for a loan is then 665.
This averaged score surpasses the 620 minimum for most loan programs, which makes these homebuyers eligible to purchase a home or refinance their existing mortgage.
Benefits for Co-Borrowers
This innovative credit score rule offers numerous advantages, especially for dual-income households.
It’s not uncommon for co-borrowers to have vastly different credit profiles, with one having a high score and the other facing past challenges that have lowered their credit rating.
Under the previous rules, this would often render both co-borrowers ineligible.With Fannie Mae’s new rules, co-borrowers have a better chance of gaining eligibility for a home loan, and both of their incomes can contribute to the final approval.
This also means that even if one co-borrower’s credit score is less than stellar, they can still jointly secure a mortgage, leveraging their combined financial strength and dual income.
Fannie Mae’s recent announcement is a game-changer for co-borrowers seeking to refinance or embark on the home buying journey.
If you’re eager to benefit from this rule change, schedule a free consultation with one of our experienced loan officers. They can help you determine your eligibility and guide you through the process of securing a mortgage under the new credit score rule. Get started today!
The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 10/12/2023.